Xbox Undergoes Biggest Reset in History with Layoffs and Studio Divestments

Microsoft has announced a sweeping overhaul of its Xbox gaming business, marking what the company describes as the biggest restructuring in Xbox's history. As part of the move, approximately 3,200 employees will be laid off through fiscal year 2027, while four game development studios will be separated from Xbox's first-party portfolio.

The company says the changes are aimed at simplifying operations, lowering costs, and returning the gaming business to sustainable growth after several years of slower-than-expected performance.

Xbox Layoffs: 3,200 Jobs to Be Cut by 2027

In an internal memo shared with employees and later posted on X, Xbox CEO Asha Sharma confirmed that around 1,600 employees will lose their jobs immediately. Additional workforce reductions are planned over the next two fiscal years, bringing the total number of layoffs to roughly 3,200.

Sharma described the move as "the most significant restructure in Xbox history," acknowledging that the gaming division has struggled to achieve the growth Microsoft had anticipated despite heavy investments in Game Pass, first-party content, and studio acquisitions.

The Xbox chief admitted that the company's gaming business has been operating with margins significantly lower than competing publishers and platforms. According to Sharma, while Microsoft's investments have created long-term value, they "have not grown at the pace we expected," making a large-scale restructuring necessary.

Four Xbox Studios to Leave First-Party Portfolio

As part of the restructuring, Microsoft will divest four of its game development studios. Compulsion Games, Double Fine Productions, Ninja Theory, and Undead Labs will no longer operate as Xbox first-party studios.

Compulsion Games and Double Fine Productions will return to independent ownership along with their existing intellectual property and game portfolios. Meanwhile, Ninja Theory and Undead Labs will transition to new owners, who will provide funding to complete ongoing projects, including Senua and State of Decay 3.

The restructuring could extend beyond these studios. In France, Arkane Studios has reportedly begun consultations regarding strategic alternatives, including a potential sale or spin-off, although Microsoft has yet to announce any final decision.

Why Microsoft Is Restructuring Xbox

According to Sharma, Xbox is facing one of the toughest periods in its history. The executive described the current console generation as the company's "most severe hardware crisis," citing a smaller install base and a significantly higher cost structure compared to competitors.

Microsoft also acknowledged that its aggressive expansion through acquisitions increased operational complexity without delivering the expected financial returns. To address these issues, the company plans to simplify Xbox's internal hierarchy by reducing management layers from as many as 14 to no more than five.

As part of the reorganization, Microsoft has appointed Helen Chiang as Xbox's first Chief Operating Officer. In her new role, Chiang will oversee Xbox's content, hardware, platform, and services businesses under a unified operating structure as Microsoft works toward restoring growth by 2027.